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How infrastructure bonds work? How to invest in infrastructure bonds? A complete Guide

Updated on February 21, 2016

How infrastructure bonds work? How to invest in infrastructure bonds? A complete Guide

How infrastructure bonds work? Infrastructure bonds are an excellent way of investment in the Indian capital market as India is witnessing rapid industrialization with phenomenal infrastructure growth, and returns from infrastructure bonds are sure to peak in the years to come. Infrastructure bonds are market instruments just like Stocks. Unlike stocks while fluctuate, Infrastructure bonds offer a fixed coupon rate (interest rate).

Infrastructure bonds are long-term investments with low-risk. Since most of the Infrastructure bonds are issued by government backed/public sector companies, the risk is very low. The minimum investment in these bonds is Rs. 5000 and the tenure of the bonds is 10 years. The minimum lock-in period is 5 years after which companies offer a buyback option for investors. The bonds get listed and then traded on the stock exchanges to offer an exit route to investors

These bonds are considered as capital assets like your Life insurance policy and hence an investor can take loans against these bonds. There is no tax deduction at source (TDS) from the interest that accrues to the bondholders. A person investing Rs 1 crore in infrastructure bonds with tenure of 10 years will get a tax exemption of Rs 70 lakh over the entire period of 10 years assuming the bonds carry a coupon of 7%

Who can subscribe for Infrastructure bonds? Any Indian resident or Hindu Undivided Family (HUF) can invest in these bonds. These are ideal for individuals who have exhausted the Rs. 1.5 lakh exemption under the Income tax act under Section 80C. Hence, these would suit those in the higher-tax brackets. Infrastructure bonds are issued in both demat and physical form.

Tax saving benefit: Infrastructure bonds are largely meant for Tax saving purposes. They provide special concession as far as Tax exemption is concerned. You can reduce your taxable income under Income Tax act 80C by investing your money in Savings schemes etc, but the limit is capped at Rs. 1,50,000. But infrastructure bonds are tax-free, which means that you could invest any additional money in your purse in these bonds and the interest accruing from these bonds will not be taxed.

Drawback of Infrastructure bonds: As Infrastructure bonds are not adjusted to inflation, sometimes the interest rates stay the same even in times of high inflation.

Which are the popular companies offering infrastructure bonds? Companies like IDFC, Larsen & Toubro (L&T), IIFCL, Rural Electrification corporation (REC) etc are issuing infrastructure bonds in India


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